Should I tap my 401(k) to pay the mortgage?

I have two mortgages (a primary and second). My equity on the home has gone down in the last couple of years -- I have paid down $65,000 of my original loan, but the house is still worth less than what I owe.

I can pay off my second loan by taking a 401(k) loan, but I'm not sure if this is the right thing to do.
-- Ram

Consult a financial planner on that one. I doubt a planner would think it's wise to borrow from your 401(k) to pay off a second lien. But maybe there are other issues to consider. I kind of doubt it, though.

Why borrow against your retirement savings to pay off a second lienholder of an asset whose value is declining?

Will lenders court an underwater borrower?

I'm looking to do a HARP refi. I have heard that because it's a Fannie Mae loan, I don't necessarily have to go with my existing lender. How and where do I go to shop rates? Are lenders generally reluctant to pick up another loan that's underwater?
-- Audrey

advertisement

You could try looking at the rate tables at Bankrate.com. Or, ask friends, family and co-workers for referrals to lenders. When you rate-shop during a short period (two or six weeks, I believe, depending on the lender), all of your mortgage inquiries are lumped together as one inquiry for credit-scoring purposes.

Yes, lenders seem reluctant to pick up underwater HARP refis. But sometimes they do it.

Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on certain links posted on this website.